SoFi

Altcoin season is a term used to describe a period in the cryptocurrency markets during which altcoins, or a significant percentage of them, rally and see their prices increase.

Altcoin itself is a sort of catch-all term that refers to cryptocurrencies aside from Bitcoin; they’re “alternate” coins, in other words. Since Bitcoin is the biggest and most popular crypto on the market, almost all other cryptos are seemingly in a classification of their own: Altcoins.

What Is Altcoin Season?

Altcoin season is a stretch in which altcoin appreciation outperforms Bitcoin, or a significant number of altcoins simultaneously see their prices increase. Or, put another way, altcoin season happens when there’s steady outperformance of tokens and coins that aren’t Bitcoin. They could last weeks, or even months.

How Altcoin Season Differs from Bitcoin Cycles

Cryptocurrencies tend to experience market cycles, similar to those seen in the broader economy and even in the stock market. That means that prices, productivity, or other metrics experience periods of expansion (value growth) or contraction (value decline). The same happens in the crypto markets.

Altcoin season, then, can happen when Bitcoin reaches the bottom of one of those cycles, effectively paving the way for altcoins to experience a period of expansion or growth.

However, there’s no guarantee that every runup in Bitcoin will turn into a downturn later, or that altcoins will start outperforming the original crypto. In fact, it’s not uncommon for all cryptos to rise together, as excitement about the sector grows. As such, there can be pros and cons to owning crypto.

The Role of Bitcoin Dominance in Market Trends

Bitcoin is the oldest and largest cryptocurrency. So, it tends to set the tone for the markets, and can move the currents and momentum within them, so to speak. When there is a big movement or change with Bitcoin, that is generally reflected in the markets, and that filters down to altcoins, which include different types of cryptocurrencies.

So, following a Bitcoin rally, it’s possible altcoins could also rally (though not guaranteed). They could both then see a staggered cooling period.

Why Do Altcoins Often Follow Bitcoin’s Price Movements?

There are a few different theories for why altcoin season happens, and why altcoins tend to follow Bitcoin’s price movements. Here are some of the most common.

Expectations of Future Growth

After a large runup of Bitcoin, crypto-holder’s projected growth in the price of other crypto assets might change.

The Altcoin Season Index: Your #1 Indicator

Remember this: You can’t determine altcoin season just by looking at the price of altcoins, Bitcoin, or any other cryptocurrency in isolation. Perhaps the best gauge is the Altcoin Season Index.

How This Key Indicator Works

The Altcoin Season Index is a crypto market indicator, similar to many other market-focused metrics out there, that helps market participants get a sense of whether or not altcoins are outperforming or seeing more appreciation than Bitcoin at any given time. It is, in other words, a tool to measure the prevailing winds of the crypto market.

The Index itself looks at the top altcoins on the market (with the exception of crypto’s stablecoins), measures their collective performance over a period of the previous 90 days, and produces an index score that reports the percentage of altcoins (altcoins tracked by the Index) that are or have performed better than Bitcoin during the tracking period.

How to Read the Index’s Signals

As noted, the Index produces a percentage that helps market participants gauge whether they’re witnessing an “altcoin season” play out. Depending on the percentage, or the signal, produced, the crypto market could be said to be either in a “Bitcoin season,” neutral, or in an “altcoin season.”

Specifically, here’s how those percentages break down:

•  0-25%: This means that less than a quarter of tracked altcoins are outperforming Bitcoin, putting the market in a “Bitcoin season.”

•  26-74%: A solid amount of altcoins are outperforming Bitcoin, but not an overwhelming amount. This is a “neutral” market.

•  75-100%: This indicates that the vast majority of altcoins are outperforming Bitcoin; the market is experiencing an “altcoin season.”

Where to Find the Live Index Data

Data related to the Altcoin Season Index can be found on a number of websites. A simple internet search should bring up plenty of places to access the live data.

3 Other Key Signs an Altcoin Season Might Be Starting

The Altcoin Season Index is a powerful tool to help crypto market participants gauge whether the market is, in fact, experiencing an Altcoin Season. But there are a few other key signs you can use to try and discern what’s happening.

Sign 1: Bitcoin’s Price Stabilizes After a Major Rally

One sign that may indicate an Altcoin Season is nigh is that Bitcoin starts to see a period of price stabilization, particularly after it rallies a bit. In the wake of the rally, Bitcoin prices may appreciate more slowly, or even fall or remain relatively stagnant. Altcoins, following the rally, could see a rally of their own, marking the beginning of an altcoin season.

Sign 2: New Narratives and Hype Cycles Emerge (e.g., DeFi, AI, GameFi)

Certain altcoins may see a period of appreciation that outperforms Bitcoin, too, if the market and news cycle is suddenly saturated with new, emerging narratives or hype cycles. These can take many forms, but may center around expanding or emerging AI or DeFI projects, among other things. Many of those projects may have their own related altcoins, which see value appreciation as a part of the hype cycle.

That enthusiasm may also spill over into other altcoins, sparking a rally.

Sign 3: Retail Interest and Social Media Buzz Explode

Similarly, there may be times when altcoin interest or hype takes flight among the general market or on social media. That can create hype cycles, and market participants may want to get in on the action as altcoins see price appreciation. Hype cycles can happen at any time, and seemingly for any reason, or sometimes no reason at all. And it can be difficult to tell if these will be brief hype bursts, or sustained, broad altcoin seasons.

What Happened in Past Altcoin Seasons?

There are examples of previous altcoin seasons, such as those that occurred during 2017, and again in 2021. Here’s a brief rundown of what happened.

2017

During 2017, there was a rapid and broad altcoin rally that was largely driven by speculative market participants, a slew of project launches, and piles of money entering the crypto markets.^[1]

Specifically, regulatory changes in Japan helped fuel the frenzy, and Ethereum took off as what looked like the next Bitcoin, becoming the second-largest crypto on the market. There were also many ICOs, or initial coin offerings that year, and Bitcoin’s price also reached a high point (which it would eclipse in later years).

Ethereum, Ripple, Litecoin, and Bitcoin Cash were some of the top-performing altcoins that year, too.

2021

Similarly, 2021^[2] saw another altcoin season and huge swell in interest in the crypto markets. There were several things happening, including a boom in NFTs and meme coins, much of which redirected capital and resources away from Bitcoin and into altcoins or other crypto-related projects.

This was all occurring during the pandemic, as well, which drove lots of speculative buying and selling all while the crypto ecosystem itself was becoming more sophisticated and entering the mainstream.

Some top performing altcoins in 2021 included Shiba Inu, Dogecoin, Solana, and Polygon.^[3]

Lessons Learned from Historical Rallies

What sorts of takeaways are to be had from previous altcoin seasons? There can be a lot to digest, and the history of Bitcoin prices — which in of themselves have been volatile — play a role. But perhaps the overriding lessons are that the crypto markets can be and often are driven by hype and intense speculation. There can be outside events that also play a factor (such as global health emergencies and softening government stances toward crypto), but by and large, the markets can be difficult to predict and make sense of.

With all of this in mind, it can be good to keep risk in mind. Over short time periods, assets, be they crypto holdings, stocks, or precious metals, can lose value. The market is volatile, and things are always changing.

How to Approach Altcoin Season

With all of this in mind, how can crypto market participants best approach altcoin seasons, assuming they feel that one is waiting in the wings? Here are a few things to help keep you grounded.

Avoiding the FOMO (Fear of Missing Out) Trap

While altcoins may be used as a tool for transactions, or as a store of value, or even as a means of generating passive crypto income, it’s dangerous to get lured into the assumption that they could continue to appreciate. That can lead to making poor decisions due to FOMO, or the fear of missing out. Cryptocurrencies prices are historically highly volatile, and that should be taken into account during altcoin seasons, as well.

Perhaps the best thing to do in these cases is to keep your head on your shoulders, remember that you have a financial plan (or may want to create one), and that any altcoins you may be considering holding are merely one element of that.

Separating Market Hype From a Project’s Real Utility

Similarly, you may be hearing or seeing a lot of crypto hype about altcoin seasons or related to a specific crypto project. It may be helpful to try and understand where it’s coming from. You may want to ask whether there’s really a “there” there, and do some research before deciding to buy, sell, or hold altcoins whose potential promise could be unfounded or that could even turn out to be a crypto scam or rug-pull.

Volatility

The crypto market is volatile, and that volatility can occur during any “season,” not just “altcoin season.” It can be a good idea to try and keep that in mind when navigating the crypto space.

The Takeaway

Altcoin season describes a time period when altcoins steadily outperform Bitcoin. There are a few ways to try to determine altcoin season, but it remains impossible to predict. Basically, you’ll usually know it when you’re in it. And when an altcoin season does occur, it’s important to navigate it carefully. Always researching options carefully can help ensure they align with your financial goals and risk tolerance.

Soon, SoFi members will be able to buy, sell, and hold cryptocurrencies, such as Bitcoin, Ethereum, and more, and manage them all seamlessly alongside their other finances. This, however, is just the first of an expanding list of crypto services SoFi aims to provide, giving members more control and more ways to manage their money.

FAQ

How can you tell if altcoin season has started?

There may not be a good or surefire way to determine if an altcoin season has started, at least not until some time has passed and there’s data to digest to help determine that. However, you can look for certain signs, such as a cooling Bitcoin rally, as a precursor or indicator that the altcoin market could rally.

How long do altcoin seasons usually last?

There’s really no telling for sure how long an altcoin season will last, but historically, they’ve lasted for one or two months, and perhaps a little longer.

Are all altcoins likely to rise during an altseason?

Depending on several factors, some altcoins are probably more likely to see value appreciation during an altcoin season than others.

What role does institutional investment play in altcoin seasons?

If institutional investors plow a project with a bunch of capital or make a huge investment in a particular altcoin, that could spark an altcoin season as interest rises in that altcoin, and also related ones. But there’s no guarantee that would necessarily happen.

Which indicators signal the end of an altcoin season?

One indicator that an altcoin season is near or at its end is a rally in Bitcoin prices, signalling Bitcoin may be returning to its dominant position.

Photo credit: iStock/Prostock-Studio

SOCRYP-Q325-088

Crypto and stocks may seem similar at first, but they are fundamentally different types of assets. There are key differences in terms of how they’re structured (one is digital, one has real-world value), how volatile they are (crypto’s swings can be more dramatic), how they’re stored, and more.

Crypto and stocks both have their pros and cons, and certain risks to consider. Here’s what you need to know.

Understanding What You Own

Before getting too granular in the differences between crypto and stocks, you may to solidify your understanding of what, exactly, each is.

Stocks

In the simplest terms, a stock is a share of ownership in a publicly-traded company. As a stockholder, you own part of the company.

So, when thinking about the difference between crypto and stocks, the first point to remember is that a share of stock may represent a percentage of ownership in a tangible business.

While stocks and whole sectors go in and out of fashion with investors, the stock itself still corresponds to a portion of a functioning company, with a price that’s tied to the underlying, fundamental value of that company. By contrast, cryptocurrencies are wholly digital, and that impacts their value, their real-world viability, and how they are traded.

Cryptocurrency

Cryptocurrencies are a speculative asset class that are created and stored digitally, using decentralized blockchain technology.

The main difference between crypto vs. stocks is that stocks are a share of ownership, while cryptocurrencies don’t have any intrinsic value – their value is largely determined by market sentiment, and supply and demand, which is one reason cryptocurrencies can be highly volatile.

It’s also important to know that most cryptocurrencies are not valued the way fiat currencies are. Fiat currency, like the U.S. dollar, is money that’s issued and backed by a central bank or government. Cryptocurrencies are wholly digital, and are not issued or overseen by a government, bank, or any other central authority.

And because they’re volatile, most types of cryptocurrencies aren’t currencies in the traditional sense. Their real-world value as a means of purchasing goods and services is often limited, although this is expanding as payment systems and retailers begin to accept certain cryptocurrencies, such as Bitcoin.

The value of a cryptocurrency reflects a variety of factors, including, as mentioned above, current supply and demand for that currency. In some cases, it also reflects a faith in the underlying technology that powers the currency, or a particular innovation that a certain crypto stands for.

7 Key Differences Between Crypto and Stocks

Knowing that both crypto and stocks are two different things, there are some further, more detailed differences that are important to parse out.

Regulation

In terms of regulation, the key difference between stocks and crypto is that stocks have an established oversight apparatus, while crypto regulation is still emerging and formulating.

For stocks, there are national agencies in the United States, such as the Securities and Exchanges Commission (SEC), which oversee stocks and stock markets, and the Financial Industry Regulatory Authority (FINRA), which regulates broker-dealers. The regulation provided by these groups helps create a certain level of transparency into publicly traded companies.

By contrast, cryptocurrencies have only begun being regulated by the federal government. Though there have been some regulatory frameworks introduced recently (The GENIUS Act, for example), the regulatory apparatus isn’t as robust as it is for stocks or other securities.

In the current U.S. market, cryptocurrency regulation is a collection of rules from multiple federal agencies and state-level laws, impacting buying, selling, and holding of the crypto assets, depending on the nature and use of the crypto asset. Current regulations may not apply directly to an individual’s personal use of their self-custody wallet, but they heavily govern the exchanges, platforms, and services an individual uses to buy, sell, or custody their assets in the U.S. financial system.

Volatility and Market Risk

Both crypto and stocks are or can be volatile and are subject to market risk. But stocks are, traditionally, subject to more moderate volatility, often driven by fundamental or economic factors, whereas crypto can experience extreme swings and volatility, driven by shifts in market sentiment perhaps more than anything.

Make no mistake: There is volatility and risk involved in buying both crypto and stocks. Both assets can go up or down in value, and it’s nearly impossible to time the market to know exactly the best time to buy or sell.

While the stock market has a well-earned reputation for volatility, the broader market has tended to go up over the course of decades. Since past performance is no guarantee of future returns, and public stocks must publicly report on their finances, investors have access to several sources of information to make decisions about purchasing those securities.

On the other hand, cryptocurrency is, or traditionally has been, more likely to undergo sudden, drastic changes in value, sometimes without warning.

Those swings can lead to potentially big wins for crypto users, but it can also create large losses, including total loss, in a very short period of time. While it is possible for public companies to go bankrupt and their shares to become worthless, they’re far less likely to lose all of their value than most cryptocurrencies are.

Trading Hours and Market Access

The stock markets are usually only open during business hours in their home country, Monday through Friday, and closed on holidays on weekends. By contrast, the crypto market runs around the clock, every day of the year.

The 24/7 availability of the crypto markets may be one reason why crypto is so volatile. As decades of research on the stock market has shown, some investors often succumb to emotional impulses that can drive their behavior. Time off may help restore a sense of control and order, giving participants a chance to cool down.

What Drives Their Value

Crypto and stock values may be driven by different factors, too. Stock values may increase after a strong earnings report, for instance, while crypto values may increase due to scarcity, speculation, or adoption trends, along with other variables.

There can also be associated costs to contend with, which may also hurt demand for one or the other.

For example, every time an investor buys or sells stocks, they may need to pay transaction fees, such as commissions, that eat into their returns. Even investors who purchase assets like low-fee index mutual funds, which are essentially baskets of stocks, have to pay fees that cover the costs of running the fund.

The costs of actively managed funds, and for trading through a brokerage account, may be higher.

Note that crypto exchanges also charge fees. And there are “gas fees,” which are the costs extracted by a network for various transactions on the blockchain. These fees vary widely from one form of crypto to another.

While costs are not the end-all-be-all that affect demand, it is something that’s in the mix, and that should be taken into account when considering any stock or crypto transaction.

Market Age and History

As noted, the concept of stocks and stock-trading has a long, established history going back centuries. The rules are solidified, oversight and regulation is in place, and investors or traders generally have a good idea of how the markets work.

Crypto markets, on the other hand, are very young, having been around for only around a decade-and-a-half. Until recently, they were largely unregulated, too, and the whole crypto space has had a “wild west” feel to it. That’s quickly changing, but its short history could also mean that there’s more risk involved, which some may not be comfortable with or have the capacity to take.

Liquidity (How Easily They Are Bought and Sold)

Stocks are liquid, meaning they’re fairly easy to buy and sell. Crypto, depending on the specific crypto at hand, can have variable levels of liquidity.

For more background: Smaller markets also affect the ability to trade in and out of your investments, whether they’re stocks or cryptocurrencies. That ability to trade an asset at will without substantially affecting its price is called liquidity. Investors typically consider stocks highly liquid, since there are so many active traders in the stock market.

With cryptocurrency, on the other hand, liquidity varies quite a bit from one form of crypto to another. Bitcoin is a more liquid asset than most cryptocurrency. That means there are more buyers and sellers who want to trade if you want to get in or out of that particular cryptocurrency.

Custody: Who Holds Your Assets?

The concept of custody is also important, and differs between cryptocurrencies and stocks.

In effect, brokerages hold stocks or other types of securities, acting as a custodian for investors. Additionally, to purchase and own stock, you typically need a brokerage account to handle the transaction. That account is verified by information like your address, Social Security number, signature, and more. This offers some protection in the event of identity theft or fraud.

That is not always the case with crypto, where crypto users themselves may be the custodians, and need to handle and store their assets accordingly. Some crypto users also keep their cryptocurrencies in their own personal (non-custodial) crypto wallets vs. a crypto exchange, which can be fully virtual or exist offline on a USB drive. That may create unique risks, such as forgetting your password and losing access to your account. Or you could misplace your USB drive, and lose all your crypto.

But there are instances in which exchanges may act as custodians, similar to brokerages. Crypto exchanges and certain other financial crypto platforms are subject to certain laws, meaning they must verify customers’ identities, as required by Know Your Customer (KYC) laws designed to help prevent illegal activities.

It’s also important to know that cryptocurrencies are not insured in the event of a financial institution’s failure as traditional brokerage assets are by the Securities Investor Protection Corporation (SPIC) and traditional bank deposits are by the Federal Deposit Insurance Corporation (FDIC).

The Takeaway

Stocks and cryptocurrency seem similar, but have some stark differences. Stocks offer investors a tangible piece of ownership in a company (even if it’s a tiny fraction of that company), whereas crypto assets don’t have intrinsic value. That said, both can offer different things for holders.

Soon, SoFi members will be able to buy, sell, and hold cryptocurrencies, such as Bitcoin, Ethereum, and more, and manage them all seamlessly alongside their other finances. This, however, is just the first of an expanding list of crypto services SoFi aims to provide, giving members more control and more ways to manage their money.

FAQ

Is crypto harder than stocks?

In some sense, crypto may be a bit more difficult to comprehend than stocks. Cryptocurrencies are bought and sold on crypto exchanges; the fees are unpredictable; and many types of crypto are so new they don’t have a track record, and it’s hard to establish their value. Exchange-traded stocks are well established and highly regulated securities that can be bought and sold via a traditional brokerage or app, in a variety of forms — including index funds and exchange-traded funds, and more.

Is crypto taxed more than stocks?

Crypto is treated as property by the IRS, the same as stocks, so the two are more or less taxed in the same way. Further, crypto could be taxed as ordinary income if it’s acquired through staking, mining, or received as payment.

What are the main differences in regulation between crypto and stocks?

Stocks are regulated under a well-established federal framework overseen by agencies like the SEC, and have been for a long time. Crypto regulation, conversely, is new and evolving, and until recently, almost non-existent in the U.S.

Can buying and selling crypto impact the stock market?

There isn’t a huge sample size at this time, but it seems that what happens in the crypto markets is at least somewhat correlated with what happens in the stock markets. Meaning, investors in each market seem to be behaving similarly.

Photo credit: iStock/ljubaphoto

SOCRYP-Q325-114

If you’re leaving a job, you may hear the term “rollover IRA.” But exactly what is a rollover IRA? Employees have the option of moving their retirement savings from their employer-sponsored 401(k) plan to an individual retirement account, or IRA, at another financial institution when they leave a job. This IRA, where they transfer their 401(k) savings to, is called a rollover IRA. If the 401(k) plan was not a Roth 401(k), you’ll likely want to open what’s called a traditional IRA.

In this scenario, a rollover IRA is also a traditional IRA. But they aren’t always the same. You can have a traditional IRA that is not a rollover IRA. Read on for the differences worth noting between a rollover IRA and a traditional IRA.

Is There a Difference Between a Rollover IRA and a Traditional IRA?

When it comes to a rollover IRA vs. traditional IRA, the only real difference is that the money in a rollover IRA was rolled over from an employer-sponsored retirement plan.

Otherwise, the accounts share the same tax rules on withdrawals, required minimum distributions, and conversions to Roth IRAs.

Recommended: Types of Retirement Plans and Which to Consider

What Is a Rollover IRA?

A rollover IRA is an individual retirement account created with money that’s being rolled over from a qualified retirement plan like a 401(k). Generally, rollover IRAs happen when someone leaves a job with an employer-sponsored plan, such as a 401(k) or 403(b), and they roll the assets from that plan into a rollover IRA.

In a rollover IRA, like a traditional IRA, your savings grow tax-free until you withdraw the money in retirement. There are several advantages to rolling your employer-sponsored retirement plan into an IRA, vs. into a 401(k) with a new employer:

•   IRAs may charge lower fees than 401(k) providers.

•   IRAs may offer more investment options than an employer-sponsored retirement account.

•   You may be able to consolidate several retirement accounts into one rollover IRA, simplifying management of your investments.

•   IRAs offer the ability to withdraw money early for certain eligible expenses, such as purchasing your first home or paying for higher education. In these cases, while you’ll pay income taxes on the money you withdraw, you won’t owe any early withdrawal penalty.

There are also some rollover IRA rules that may feel like disadvantages to putting your money into an IRA instead of leaving it in an employer-sponsored plan:

•   While you can borrow money from your 401(k) and pay it back over time, you cannot take a loan from an IRA account.

•   Certain investments that were offered in your 401(k) plan may not be available in the IRA account.

•   There may be negative tax implications to rolling over company stock.

•   An IRA requires that you start taking required minimum distributions (RMDs) from the account at age 73, even if you’re still working, whereas you may be able to delay your RMDs from an employer-sponsored account if you’re still working.

•   The money in an employer plan is protected from creditors and judgments, whereas the money in an IRA may not be, depending on your state.

Recommended: 4 Step Guide to Retirement Planning

What Is a Traditional IRA?

Now that you know the answer to the question of what is a rollover IRA?, you’ll want to familiarize yourself with a traditional IRA. To understand the difference between a rollover IRA vs. traditional IRA, it helps to know some IRA basics.

From the moment you open a traditional IRA, your contributions to the account are typically tax deductible, so your savings will grow tax-free until you make withdrawals in retirement.

This is advantageous to some retirees: Upon retirement, it’s likely one might be in a lower income tax bracket than when they were employed. Given that, the money they withdraw will be taxed at a lower rate than it would have when they contributed.

A Side-by-Side Comparison of Rollover IRA vs Traditional IRA

Can You Contribute to a Rollover IRA?

By now you’re probably wondering, can I contribute to a rollover IRA?, and the answer is yes. You can make contributions to a rollover IRA, up to IRA contribution limits. For tax year 2025, individuals can contribute up to $7,000 (with an additional catch-up contribution of $1,000 if they’re 50 or older). For tax year 2026, they can contribute up to $7,500 (with an additional catch-up contribution of $1,100). If you do add money to your rollover IRA, however, you may not be able to roll the account into another employer’s retirement plan at a later date.

Can You Combine a Traditional IRA With a Rollover IRA?

A rollover IRA is essentially a traditional IRA that was created when money was rolled into it. Hence, you can combine two IRAs by having a direct transfer done from one account to another, or by rolling money from one IRA to the other IRA.

There’s one important aspect of the rollover process that will help prevent the money from counting as an early withdrawal or distribution to you, and that’s being timely with any transfers. With an indirect rollover (which is when the money goes to you and you move the money into the new plan), you typically have 60 days to deposit the money from the now-closed fund into the new one. (Another option is a direct rollover, when the funds go directly from your 401(k) into the IRA account.)

A few other key points to remember: As mentioned above, if you add non-rollover money to a rollover account, you may lose the ability to roll funds into a future employer’s retirement plan. Also keep in mind that there’s a limit of one rollover between IRAs in any 12-month period. This is strictly an IRA-to-IRA limit and does not apply to rollovers from a retirement plan to an IRA.

How to Open a Traditional or Rollover IRA Account

Opening a traditional IRA and a rollover IRA are identical processes — the only difference is the funding. You can open a traditional or rollover IRA by doing the following:

•   Decide where to open your IRA. For instance, you can choose an online brokerage where you can choose your own investments, or you can select a robo-advisor that will offer automated suggestions based on your answers to a few basic investing questions. (There’s a small fee associated with most robo-advisors.)

•   Open an account. From the provider’s website, select the type of IRA you’d like to open — traditional or rollover, in this case — and provide a few pieces of personal information. You’ll likely need to supply your date of birth, Social Security number, and contact and employment information.

•   Fund the account. You can fund the account with a direct contribution via check or a transfer from your bank account, transferring money from another IRA, or rolling over the money from an employer-sponsored retirement plan. Contact your company plan administrator for information on how to do the latter.

The Takeaway

Both a rollover IRA and a traditional IRA allow investors to put money away for retirement in a tax-advantaged way, with very little difference between the two accounts.

One of the primary questions anyone considering a rollover IRA should consider is, will you keep contributing to it? If so, that would prevent you from rolling the rollover IRA back into an employer-sponsored retirement account in the future.

Whether it’s a rollover IRA you’ve created by rolling over an employer-sponsored retirement account or a traditional IRA you’ve opened with regular contributions, either account can play a key role in your retirement game plan.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

Can you take money out of a rollover IRA?

Yes, but if you take money from a rollover IRA (or a traditional IRA for that matter) before age 59½, those withdrawals are subject to income tax and an early withdrawal penalty of 10%. There are certain exceptions, however. If you withdraw the money for certain higher education expenses or to buy your first home, for example, the penalty may not apply.

Why would you rollover an IRA?

A rollover is when you move money between two different types of retirement plans. Typically, you might roll over an IRA if you leave a job with an employer-sponsored plan, such as a 401(k) or 403(b). You would roll the assets from that plan into a rollover IRA where your savings grow tax-free until you withdraw the money in retirement.

You could instead choose to leave the money in your former employer’s plan, if that’s allowed, or roll it over into your new employer’s 401(k) or 403(b) plan, if they have one. However, a rollover IRA may offer you more investment choices and lower fees and costs than an employer-sponsored plan.

Can I roll over assets into my traditional IRA?

Yes, rolled over money can be contributed to a traditional IRA. It’s also worth noting that you can also combine a traditional IRA and a rollover IRA. You can do this with a direct transfer from one account to another, or by rolling money from one IRA to another, for instance. Just keep in mind that there is a limit of one rollover between IRAs in any 12-month period.